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Qatar, Abu Dhabi Appeal Grow as Banks Seek Security: Arab Credit

Qatar Petroleum raised the Middle East’s biggest syndicated loan this year as banks lend to state-backed projects after the region’s political unrest and Europe’s debt crisis reduced borrowing.

The state-run energy company said Dec. 13 it completed the financing of the Barzan Gas Project with a $7.2 billion syndicated loan. Qatar, holder of the world’s third-largest natural gas reserves, is stepping up the pace of infrastructure developments as it prepares to host the 2022 soccer World Cup.

Borrowers backed by oil- and gas-rich Persian Gulf emirates such as Qatar and Abu Dhabi have secured loans even as syndicated lending in the Middle East and North Africa fell 47 percent, excluding most of the Barzan loan. Qatar and Abu Dhabi have the third-highest investment grade ratings at Standard & Poor’s. The economy of Qatar, the region’s second-biggest issuer of dollar bonds this year, will grow 19 percent in 2011, the International Monetary Fund forecasts.

“Everyone is desperate to lend to anyone who definitely is going to pay them back,” Akber Khan, a director at Al Rayan Investment in the Qatari capital Doha, said by phone Dec. 23. “It’s not so much about what is the right rate to lend at. The question is who can you lend to and sleep comfortably at night.”

Credit Worthy

Europe’s debt crisis started in October 2009 with Greece’s admission it had underestimated its budget deficit. Syndicated lending in the Middle East and North Africa dropped to $32.4 billion this year from $61.3 billion in 2010, data compiled by Bloomberg showed. It reached a record $109.6 billion in 2007.

Middle East lenders, including National Bank of Egypt and Emirates NBD PJSC, accounted for five of this year’s top 10 mandated banks in the region. That’s up from three in the previous two years. France’s BNP Paribas SA, ranked sixth last year, and Credit Agricole SA, ranked fourth in 2009, dropped off the list as Europe’s debt crisis forced them to scale back their regional business.

The $10.3 billion Barzan project is Qatar’s most-expensive energy project since Royal Dutch Shell Plc announced the Pearl gas-to-liquids plant, now budgeted at $19 billion, in 2006. Qatar will fund the project, 7 percent owned by Exxon Mobil Corp., with as much as 30 percent equity, with banks and export credit agencies from Japan, Korea and Italy providing debt, Qatar Petroleum said in the Dec. 13 statement.

Interest in Barzan is “unsurprising if you look at the credit worthiness of the borrower and Qatar’s credit default swaps,” said Al Rayan’s Khan. “It has been one of the better performing CDS globally in 2011.” Five-year credit default swaps for the Gulf state have fallen nine basis points from this year’s peak on Oct. 4 to 127.4 on Dec. 27, CMA data show.

Better Positioned

Qatar Petroleum will pay an interest rate of 2.19 percentage points over Libor for $3.34 billion in bank loans to help finance the Barzan natural-gas project, Finance Director Abdul Rahman Al Shaibi said Dec. 20.

Qatari borrowers are better positioned than their counterparts in the United Arab Emirates, where banks pay about 30 percent more to borrow funds on the interbank market. The U.A.E.’s three-month interbank lending rate was at about 1.52 percent yesterday, compared with 1.17 percent in Qatar, according to data compiled by Bloomberg.

“The cost of funding in the U.A.E. is higher, so their lending has to be higher than that,” said Mohammed Ali Yasin, chief investment officer at Capm Investment PJSC in Abu Dhabi.

U.A.E. Pays More

Emirates Aluminium Co.’s shareholders, Mubadala Development Co. of Abu Dhabi and Dubai Aluminium, are likely to pay a higher interest rate for loans than the Barzan project, Yasin said by phone. “But banks are looking for opportunities to fund government projects, as they are not considered a risk, so such projects shouldn’t have problems getting funding.”

Emirates Aluminium may seek to borrow two thirds of the funds needed for a $4.5 billion Abu Dhabi aluminum smelter expansion, two people with knowledge of the matter said on Dec. 22. Export credit agencies and commercial banks will split funding for the smelter expansion, said the people, who declined to be identified because the transaction hasn’t been finalized.

The U.A.E.’s riskier credit profile compared with Qatar’s is linked to Dubai, where credit risk this year surged to the third-highest in the region after Egypt and Lebanon. Dubai, which roiled global markets in 2009 as it sought to renegotiate terms on about $25 billion in debt, isn’t rated.

The cost of insuring Dubai’s debt against default rose 68 basis points since the end of October to 453 on Dec. 27, according to data provider CMA. Abu Dhabi’s CDS were at 128 points, up 34 basis points this year, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

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